Challenges for Law Enforcement
"The challenges for government consumer protection agencies will increase at a time when their resources--human and financial--are stretched tighter than ever. There is no sign that low-tech scams will go away, and strong evidence that 'next tech' scams will increase and be more difficult to detect...Law enforcement agencies must work harder, smarter, and in concert to maximize the impact of their limited resources."
Anticipating the 21st Century: Consumer Protection Policy
in the New High Tech Global Marketplace
Federal Trade Commission
May 1996
Law enforcement agencies are facing substantial challenges as they anticipate new twists on common consumer frauds. The increase in high-tech and global marketing scams is especially troublesome.
Fraud on the Internet
On one day in December 1996, four federal agencies and 70 state and local law enforcement officials from 24 states notified more than 500 Internet web-sites that they may be promoting illegal pyramid schemes in violation of federal and state laws. During an "Internet Pyramid Surf Day" coordinated by the FTC, these law enforcement officials surfed the Internet to locate sites that post possible pyramid scams. Site operators were sent e-mail messages telling them that pyramid schemes are illegal, describing the characteristics of pyramids, and providing the FTC's e-mail address to help on-line entrepreneurs and consumers distinguish legal multi-level marketing plans from illegal pyramids. Surf Day demonstrates the need for law enforcement agencies to monitor embryonic fraud, stop incipient fraud before it spreads, and alert consumers to the scope of fraud in the marketplace.
Cross-Border Fraud
Fraud has gone international. While the NFIC reports that Quebec Province is now the third largest geographic source of fraud affecting American consumers, it also says consumers are reporting fraud originating in other parts of Canada, the Bahamas, and Nigeria. The FTC/NAAG Telemarketing Complaint System has also logged in consumer complaints about fraud promoters operating in Great Britain, Norway, and Canada who are pitching Americans.
In August 1995, representatives of U.S. and Canadian law enforcement agreed to coordinate enforcement of their competition and deceptive marketing practices laws.(21) In September 1996, the FTC's Bureau of Consumer Protection and Industry Canada signed another agreement establishing a U.S.-Canadian Task Force on Cross-Border Deceptive Marketing Practices. As a precursor to the Task Force, U.S. and Canadian officials held two conferences to develop greater cooperation in civil and criminal law enforcement and information sharing.
Partnerships Between Government Agencies and the Private Sector
Enhanced law enforcement against fraudulent telemarketers in 1996 succeeded in part because of cooperation not only at all levels of government but also with the private sector. For example, the FTC together with eight states and the U.S. Postal Inspection Service, initiated an impressive law enforcement and education campaign in Operation Copycat, which targeted fraudulent sales of office supplies. Operation Senior Sentinel required massive coordination among national and local civil and criminal law enforcement officials to share investigative materials and compile evidence from state Attorneys General, the FTC, and the AARP. Similarly, consumer education campaigns following Projects Roadblock, Jackpot, and $cholar$cam were maximized through the cooperation of other government agencies, the private sector, financial institutions, and other organizations.
Data Collection
Effective data collection demands the same kind of partnership effort. There is no national system in existence yet for measuring the extent of consumer fraud or consumer injury. This gap means that law enforcement agencies and the private sector must continue to estimate the incidence of fraud in the U.S. by extrapolating statistical conclusions from reported complaints. This methodology is a problem because many consumers report fraud months after they have been victimized(22) or, more significantly, never report their losses to law enforcement officials at all.(23)
American consumers currently report fraud to a variety of organizations--both governmental and private. For example, consumers who wanted to register complaints about the frauds covered in this report could have filed complaints with at least six federal law enforcement agencies and their regional offices,(24) hundreds of state and local law enforcement agencies, more than 160 nongovernmental organizations, such as the Better Business Bureau, the National Consumers League, Call For Action, and the AARP, and the law enforcement arms of foreign governments, such as Project Phonebusters in Canada. Because many consumers file separate complaints with one or more organizations, or several copies of a complaint with many consumer protection agencies, data on reported fraud is difficult to compile and assess. In addition, only a few databases--such as the FTC/NAAG Telemarketing Complaint System, the NFIC, and the U.S. Postal Inspection Service complaint system--centralize and share their consumer complaints. The FTC is making data collection and sharing a priority so that fraud can be measured and deterred more effectively.